Today’s Pop Quiz: What do Oregon and New Mexico have in common? What could possibly link the spectacular vistas of Crater Lake to the glistening White Sands?

Answer: One link is these two states have the highest share of computer and electronic production in the entire United States. Think Intel in the Silicon Forest or Los Alamos. They also rank similarly in information technology usage by their businesses.

It’s the season for shopping. We have Cyber Monday in the United States and Singles Day in China (November 11 or 11/11). So, while we are pondering shopping, try to guess which consumer market is growing the fastest. The answer is…China!

China had the largest consumption increase in the world. This was true in 2011, true in 2012, and likely to be true again this year (see chart). Consumption in China is also generally thought to be weak. Indeed, the government and the IMF are calling for more consumer-based growth. How could consumption, in effect, be both weak and strong at the same time?

Less growth in China today will mean higher income in the future. So rather than worry, we should welcome the slowdown in China’s economy. Why? Because by favoring structural reforms over short-term stimulus, China’s leadership is illustrating their commitment to move to a more balanced and sustainable growth model.

The sharp reduction in China’s current account surplus over recent years has ignited a flurry of speculation about whether the world’s second largest economy has achieved the fundamental, economic rebalancing which many have been pressing for. That is, rebalancing in terms of reduced dependence on exports, and increasing reliance on the domestic market by boosting consumer demand.

My own opinion is that it is too early to say. True, China’s current account surplus fell to around 2.8 percent of gross domestic product in 2011, from a pre-crisis peak of more than 10 percent in 2007. And while the reduction in China’s current account surplus is welcome news, we remain concerned that these changes may not represent a sustained, downward trend.

One possible sign of a durable turnaround in China’s current account surplus would be a pickup in consumption growth but there is little evidence that consumption is rising as a share of GDP.

Suddenly it’s the thing everyone is talking about. Income inequality. Not just between countries, but inequality within countries.

In North Africa and the Middle East, jobless youth sparked the Arab Spring. In the United States, the growing gap between rich and poor is the “meta concern” of the Occupy Wall Street movement. Worldwide, frustrations appear to be on the rise.

What about sub-Saharan Africa? Sustained economic growth has certainly produced some tremendous advances. But a large proportion of the population is still living in poverty. So frustrations about the inclusiveness of growth are also shared within the region.

Complex story

Is the story really as negative in sub-Saharan Africa as the relatively slow reduction in the incidence of poverty and some people’s frustration suggest? Or is the underlying situation a little more complex?

Across the world, surging international food prices have become a major cause for concern and topic of debate. This is especially so in the Arab world, which is home to some of the largest food importers and where rising food prices have been one of the factors in recent political unrest.

In the context of ongoing political developments, governments across the region are responding to the rise in commodity prices with hikes in fuel and food subsidies, civil service wage and pension increases, additional cash transfers, tax reductions, and other spending increases. These measures will help poor households maintain their purchasing power and limit further increases in domestic food prices.

How should central banks—whose task is to prevent general price increases that would further cut into peoples’ incomes—react? What inflation metric should they target? Continue reading →

With all the anxiety generated by the troubles of Portugal, Greece, and Ireland, it is easy to forget that a different part of Europe was in the spotlight two years ago, facing equally dire predictions of bank runs, fiscal ruin, and devaluation.

Today, many economies in emerging Europe are quietly staging a strong comeback. Most impressive is the turnaround in the three Baltic countries, which suffered record deep recessions in the wake of the 2008/09 financial crisis. Take Lithuania, which grew an eye-catching 14.7 percent in the first quarter of 2011. But many other countries in the region are seeing strong growth as well. Continue reading →